2021/01/19 by Anton Pichler, J. Doyne Farmer, Pichler, Anton +1
Mathematics · Business, Management and Accounting · #COVID-19 epidemiological studies #Supply Chain Resilience and Risk Management
paper · pdf · doi:10.48550/arxiv.2101.07818
Natural and anthropogenic disasters frequently affect both the supply and\ndemand side of an economy. A striking recent example is the Covid-19 pandemic\nwhich has created severe disruptions to economic output in most countries.\nThese direct shocks to supply and demand will propagate downstream and upstream\nthrough production networks. Given the exogenous shocks, we derive a lower\nbound on total shock propagation. We find that even in this best case scenario\nnetwork effects substantially amplify the initial shocks. To obtain more\nrealistic model predictions, we study the propagation of shocks bottom-up by\nimposing different rationing rules on industries if they are not able to\nsatisfy incoming demand. Our results show that economic impacts depend strongly\non the emergence of input bottlenecks, making the rationing assumption a key\nvariable in predicting adverse economic impacts. We further establish that the\nmagnitude of initial shocks and network density heavily influence model\npredictions.\n